By Alan J. Heavens<br />Inquirer Real Estate Writer<br /><a href=”http://www.philly.com/mld/philly/business/15314072.htm”>High-end condos near top?</a><br /><br />Philadelphia’s once hard-driving real estate market is clearly decelerating in 2006, a survey of sales in the first half of this year indicates. At the same time, median home prices in the city are increasing at about the rate economists had forecast.<br /><br />Prudential Fox & Roach’s HomExpert report for the first six months of 2006, based on an analysis of regional home-sales data from the Trend Multiple Listing Service, shows a 3.9 percent decline in residential sales in the city compared with the same January-to-June period in 2005.<br /><br />Meanwhile, the city’s median home price increased 3.9 percent over the first six months of 2006, to $135,000 from $129,900 in the same period last year.<br /><br />The median is the middle value: Half sold for more, half sold for less. A rise in the median does not mean that prices increased for every house sold in Philadelphia.<br /><br />An Inquirer analysis of 23,805 recorded sales above $10,000 last year put the city’s median sales price for all of 2005 at $120,000. That represented a 32 percent increase over 2004’s median price of $91,000.<br /><br />In 2005, The Inquirer’s analysis showed, every one of the city’s 46 zip codes that had residential sales showed median-price gains over 2004.<br /><br />According to the HomExpert report covering January to June of this year, 10,114 houses were sold in the city, compared with 10,520 in the first half of 2005.<br /><br />A steady stream of condo sales boosted the median price in Center City 5.1 percent, to $340,000 – the highest in the city.<br /><br />West Philadelphia had the highest increase in median price, the HomExpert report said – 19.3 percent, to $99,950. Every other segment of the city identified by HomExpert – South, Northwest and Northeast Philadelphia – also saw higher medians.<br /><br />The University of Pennsylvania “plays a major role in West Philadelphia sales, and prices become more affordable the farther west you go,” said <a href=”http://www.fredglick.com”>Fred Glick of USLoans Mortgage </a>in Philadelphia. “When you consider that the Fitler Square neighborhood was the only one in Center City not to lose value in the 1990s, and note its proximity to the university, you better understand Penn’s influence.”<br /><br />According to the HomExpert report, more houses were sold in Northeast Philadelphia than anywhere else in the first half of this year – no surprise, since that section of the city has 25 percent of its population. But the Northeast also experienced the biggest drop in sales volume, a 15.9 percent decrease when compared with the first half of 2005.<br /><br />In South Philadelphia, too, sales volume was lower, down 11.6 percent over the same period in 2005.<br /><br />Those two sections of the city attract buyers who are more interest-rate sensitive than the young professionals and empty-nesters flocking to Center City, observers of the local market said. Right now, there are fewer speculators in the Northeast, as well, because rental rates have been on the decline there.<br /><br />”The data were no surprise because we look at the market on a pended-sales basis, which is a measure of sales activity that has not settled yet,” said Steve Storti, senior vice president for Prudential Fox & Roach and responsible for the HomExpert report. “This gives us the ability to get an indication of which way the market is moving 60 to 90 days in advance. The current data also reflect a continuation of the trend we have seen for some months now.”<br /><br />The second quarter, the primary selling season of the year, provided a shot in the arm for the city’s real estate market.<br /><br />”Basically, I found that we did get a bit of a ‘spring bounce’ over the first quarter, but well below the numbers we saw this time last year,” said Kevin Gillen, an economist at the Real Estate Center at the Wharton School of the University of Pennsylvania.<br /><br />”Citywide, the average quality-controlled appreciation in house prices was 4.7 percent, with 7,229 homes changing hands,” said Gillen, who analyzes data supplied by Hallwatch.org. “Last year, the comparable numbers were 11.5 percent appreciation and 7,900 home sales.”<br />(The sales numbers cited by HomExpert and Gillen are different because their data come from different sources. Hallwatch uses recorded deeds; HomExpert uses the Multiple Listing Service.)<br /><br />When you consider that the inventory of houses on the market is larger now than it was in 2005, a few hundred fewer sold this year compared with last isn’t a doom-and-gloom scenario.<br />In the first six months of 2006, there were 13,167 homes for sale citywide, compared with 8,291 in the same period of 2005. That’s an increase of 59 percent.<br /><br />Other cities – Miami, San Diego and Boston – have seen inventories increase by 50 percent and more (Boston’s by about 100 percent), with declines in sales of 11 percent to 25 percent, according to data from the National Association of Realtors.<br /><br />The average number of days for a house to stay on the market has increased during that time, to 34 in 2006 from 20 in 2005.<br /><br />”There’s so much on the market, and buyers are shopping,” said Christopher J. Ryan, an associate broker with Prudential Fox & Roach in the Art Museum-Fairmount neighborhoods.<br />”It’s really a normal Philadelphia market,” Glick said. “Buyers, including investors, are focused on the lower-priced properties, and speculators are gone.<br /><br />”The mortgage world is quiet by comparison to what it had been, although fixed rates have dropped by half a percentage point over the last couple of weeks, and the Fed chose not to raise short-term rates,” Glick said. “I think what we’ll be seeing is an increase in the [refinancing] market, but I don’t think people will see the amazing value of the last few years, and loan-to-value ratios won’t be as high.”<br /><br />Gillen singled out the city’s condo market for price-appreciation analysis at the end of the first quarter. He found that prices appreciated 32 percent for Philadelphia as a whole, and 31.5 percent for Center City over the first quarter of 2005.<br /><br />Neighborhoods adjacent to Center City registered a 29 percent increase.<br /><br />That said, Gillen’s analysis shows that city prices are 16.8 percent higher than what “historical fundamentals” say they should be, based on factors such as historic house prices and interest rates, household income, and population density.<br /><br />Does that mean there’s a “bubble” about to burst here?<br /><br />It doesn’t seem so. Fourteen of the 25 metro areas on Gillen’s list of mid-Atlantic housing markets ranked by over-value – including Washington and New York, but also Camden and Ocean City, N.J. – showed prices that were much higher than these historical fundamentals would dictate.<br /><br />But it may mean that given a variety of factors such as expanded inventory of houses, higher interest rates, and economic uncertainty, price appreciation will not be as great this year as it was in the last few years.<br /><br />If “bubble” chatter is just empty talk, what are the chances that prices will drop in the city?<br />Gillen looked at that, too. He developed a chart projecting the percentage of risk of price drops in the next two years in Philadelphia.<br /><br />Between the last two quarters, according to his analysis, the chance of that happening has risen to 13 percent from 12 percent.<br /><br />Compare that with Boston, where the chances have stayed even for those two quarters at about 60 percent. Or San Diego, where, he said, the bars disappear off the charts.<br /><br />Contact real estate writer Alan J. Heavens at 215-854-2472 or <a href=”mailto:email@example.com”>firstname.lastname@example.org</a>.